Wednesday, April 20, 2005

Dow 10,000!

Today, just a few short minutes ago the Dow just touched 10,000. (10,000.5 to be persnickety) The Dow Industrial average first crossed the magical 10,000 number 6 years ago in March of 1999. Do you remember that? I remember that the exchange passed out baseball caps with "10,000" on them. Do you think anybody is wearing their caps today? Me neither.

This is what a market top looks like. It is a long process because the top is the end of a bull market that goes back to at least the early 90's. I say 'at least' because if we are correcting a bull market of larger degree then we are talking about many more years and/or much bigger declines in price. I know this is not easy to get charts for the non-trader who does not pay for market price data but it is worth getting a chart (semilog scale to account for the percentage difference between prices today and those in the past) of the Dow going back 100 years.

For one, you will get an idea how rare a period of time the early 80's to the late 90's was for the stock market. Also, you will see real bear markets like the fast decline of the 30's and the long slow bear of the 70's and early 80's. You will see the insignificance of the crash of 1987. It will give you a benchmark for when this bear market will be over. It isn't, yet.

For a trader, markets that are in the position like the Dow are a dream. You can make a bet that prices will decline, and if they don't, you will know exactly where you are wrong and you will know it very quickly. If the Dow goes above 11,000 then it is time to go back to the drawing boards. You're reward might be a price decline below 5,000. A pretty good risk reward ratio if you ask me. I am not recommending anybody do anything. (Because I don't want to get sued) Rather, I want you to know the potential for this bear market. So have a nice day and remember, earning 2% in a C.D. is better than owning GM right now.